Security Focus
Special survey: The power of private security in a recession
February 2009
In South Africa, a country already ravaged by crime, the reality of local job losses as a result of the global financial crisis has become a major concern, not only to the man in the street but also political and business leaders alike.
Job loss is the Democratic Alliance’s “main and overarching concern” said DA leader Helen Zille when speaking at the Democratic Alliance's Economic Breakfast Summit in Johannesburg a few weeks ago. According to Ms Zille, 74 000 South Africans lost their jobs in the third quarter of 2008, and some trade union analysts are now predicting that 310 000 jobs stand to be lost in 2009. “Given that on average every wage earner provides for eight to 10 dependents, these job losses will have a significant impact on our social and political fabric,” she said.
Humanitarian concerns aside, job losses lead to rising unemployment, which economics experts Rudolf-Winter Ebmer of the University of Linz, and Steven Raphael of the University of California, say contribute to crime.
In their research paper “Identifying the Effect of Unemployment on Crime”, they estimate that a one percentage point rise in unemployment is associated with a 4.5 per cent rise in the number of burglaries and 6.5 per cent rise in car theft. “A huge chunk of the fall in US crime in the 1990s,” they concluded, “was due to falling unemployment.”
An increase in crime in South Africa will undoubtedly impact not only on citizens but also the country’s severely under-resourced police force and of course, its security sector. Security Focus interviewed a number of key players within the security sector to find out what effect the current economic downturn was having on it.
Recession or just tough times?
“I’m not sure whether South Africa is technically in a recession or not, but I do know that we are experiencing a decline in the prosperity of our economy,” says Johan Krogh, National Chairperson of SAIDSA (South African Intruder Detection Services Association). “As a result, we’re in a catch-22 situation because it is a fact that when an economy is in a recession, crime escalates. Then, despite crime being on the up, consumers who are battling to meet their monthly financial commitments often terminate their insurance and security contracts, leaving themselves very vulnerable. Also, the industry is facing greater demands from labour as a result of increased living expenses, so we find ourselves in a vicious circle.”
Past SASA national president and MD of GriffithsReid Jenny Reid believes all industries are being affected and that everyone, whether individuals or companies, is looking at how they can tighten their belts. “Security is, unfortunately, often a grudge purchase and therefore an area where people try and cut corners when times are tough.”
Anthony Rosenbaum, MD of CMT Trading and Chairperson of ESDA (Electronic Security Distributors Association) has no doubt that the country is in a recession. “Interest rates are high (even with the recent 50 basis points decrease); inflation is still a major concern in particular in terms of food; disposable income is either non-existent or extremely tight; the SA Rand has become extremely volatile; investment markets are down and the effects of the world financial crisis have started to influence our own economy in certain key areas.”
The global downturn and international credit crunch are without doubt having a negative impact on the South African economy, and thereby impacting negatively on the man on the street, avers Clinton Phipps, MD of Enforce Security Services. “Issues such as the fuel price increase over the past two years and the increased interest rate have had a compounded effect on local inflation rates and, despite the fact that both fuel and interest rates are now on the decrease, the economy is still trying to recover from the impact of the past eighteen to twenty-four months,” he says.
“The question of whether South Africa is in a recession or not is a difficult one to answer. At this point in time, I would prefer to say that the country is in a period of rationalization and consolidation, where its fundamentals are still quite positive. Accordingly, we will probably not feel the full sting of the global recession in South Africa although times will continue to get more difficult over the months to come before we see them getting better.”
Clive van Ryneveld, MD of Chubb Electronic Security (Armed Response), Chubb South Africa, believes the country is in a recession “quite simply because the retail, property and vehicle sectors are heavily depressed and the availability of cash is scarce”.
For Mark Marais, sales executive at GeoVision SA, the country still has a way to go before it can be officially classified as being in a recession. “A recession is indicated when negative growth in GDP (gross domestic product) occurs in two or more successive years. It was only really from July 2008 that the effects of the global slowdown became visible in South Africa when sales growth slowed on the back of rising concerns about the global crisis. This was fuelled by generally negative perceptions around inflation, consumer spending and higher costs of fuel and purchases, causing projects to be delayed on the back of a ’wait-and-see’ approach.”
Kevin Derrick, Managing Director of Gremick Integrated Security, a division of Servest (Pty) Ltd, tends to agree. “I don’t think we are in a recession at present, it’s more an economic slowdown.”
“We’re not in a recession – yet,” agrees Jéan Coetzee, GM of the CCTV / POS division of Pinnacle Micro. “But we could be heading towards one if we are not careful,” he warns, saying that the saving grace is that, historically, the country’s financial policy has been conservative and its relative isolation has screened it from the brunt of America’s recession.
Effect on the industry
The security industry has not escaped the effects of the global financial downturn, say those interviewed.
“The ailing economy has impacted on the mining, heavy steel manufacturing, motor and financial sectors,” says Thabang Moropa, Business Development Director of Thorburn Security Solutions. “As a result, expansions have been withheld, costs are being cut back, increases have been lower than CPIX (Consumer Price Index) and there’s been an overall reduction in capital expenses in all affected industries. This scaling down has, in turn, impacted on our industry.”
John Loftus, MD of Norbain SA, talks of ‘debtor’s bracket creep’ within the electronics sector. “We’re seeing the time taken to recover cash from clients extending. People who would have paid in 30 days are now moving into the 60 category as a result of the financial pressure on them.”
His next point is shrinkage. “Liquidations and closures, both within and out of our industry, are affecting bad debt ratios. Added to this is that people are cutting budgets, which in our sector, means either buying less good equipment or buying the same volumes but of a lesser quality. On top of this, projects are being cancelled or postponed. There’s no argument that our clients’ buying power is critical to us and will affect us going forward.”
Razor-Spike International’s Bill Mincher foresees a growing trend towards people reducing their expenditure, particularly in the areas of physical and electronic security systems. “We have found in the past that new building projects and developments cut down on security and concentrate on other essential services, with the view that security can be added later,” he says.
“The current economic situation is affecting the security industry in that capital expenditure is being put on hold and decision-making processes are being drawn out,” adds Mr van Ryneveld. “Decisions which were previously considered short-term are becoming medium- to long-term ones, which will have a significant effect on business.”
Particularly concerned about the volatility of the rand with regard to the importation of electronic security equipment, Mr Rosenbaum says prices have increased considerably since October 2008. “With respect to the electronic security industry sector, account payments are taking far longer and many projects are being put on hold or down-sized.”
Mr Derrick is finding a similar situation playing out in his sector: “The slowdown and the credit crunch are affecting the security industry and many others as clients are tightening their belts and holding on to their monthly payments longer, resulting in poor payment of services. This has a knock-on effect, particularly for smaller businesses which won’t be able to sustain their cash flow, needed for paying salaries and wages.”
Heightened caution by decision makers is delaying potential sales, according to Mr Marais. “Financial nervousness is leading the uninformed to buy cheap imports in an attempt to save costs. What they don’t realise is that future expansion, requirements and stability may not be met, thereby incurring further costs down the line.”
The industry, although fuelled by crime and the need to reduce risk, has not escaped the effects of the slowdown, says Jack Edery, CEO of Elvey Security Technologies. “Increased costs, a weakening and volatile currency, the National Credit Act and uncertainty around the far-reaching effects of the global financial crisis, have all negatively affected our industry.”
New opportunities
Financial downturns bring with them not only new problems and challenges: they can also be catalysts for new opportunities.
“Security is an essential service,” says Mr Derrick. “As the financial pinch is being felt by employees in South Africa, so the risk to companies increases as during times such as these, theft will be on the increase. Our industry is there to help minimize the risk of theft taking place.”
What’s also likely to happen, he continues, is that as the economic slowdown continues, some of the smaller companies, which may well be great businesses, will have to close their doors due to their lack of large-capital backing. “Larger organisations will then have the opportunity of taking on these smaller businesses as they offer the financial backing and infrastructure to better service their clients.”
“Crime escalates in tough financial times, which will obviously have a positive effect on sales in the security industry,” believes Mr Marais, who accordingly sees a growing trend for informed decision makers to spend money on integrated surveillance solutions with off-site monitored functionality. “They would see this as the wiser option instead of having to change systems in the future. An example would be GIS (Geographical Information System), which will not only help curb vehicle-related crime but will also assist in various management functions. GIS will be increasingly valuable to the public transport sector with its growing problems and the law enforcement agencies.”
Even with the current financial crisis, technology is still moving forward at a very rapid rate, maintains Mr Rosenbaum. “There is a growing convergence between the IT network industry and the electronic security industry, in which systems and solutions are being developed that focus not only on security solutions but also on offering a total management package. This will appeal to anyone wanting to manage their security requirements in conjunction with the day-to-day management of their business.” He adds: “Difficult times often open doors for companies to become more efficient and cost-effective and this is where many opportunities lie for our sector in terms of new business.”
Terry Scallan is the chairman of SAIS (South African Institute of Security). His impression of the industry is that it’s currently maintaining its status quo, he too sees potential for growth, particularly in the areas of guarding, armed response, assets-in-transit and electronic security.
For Mr Moropa, the future lies in technology-intensive operations that require less manpower.
“This will translate to more CCTV (closed circuit television) systems and fewer but higher-calibre security guards.” The future also has the potential to become “the year for emerging black-owned security businesses to make their mark on the industry” if business and government award contracts on the correct merits, he adds.
Mr Edery reports that developments in electronic security continue unabated and appear to be immune from the current recessionary environment. He sees opportunities in the arenas of upgrades and improvements as a result of continued demand for integration of different technologies.
Challenges
Historically, the security industry was highly reliant on people, says Mr Coetzee. “The challenge now is to move towards technology without compromising safety while keeping a visible human presence as a deterrent. For South Africa to present the FIFA 2010 WC we will be expected by all parties including visitors to provide a high level of monitoring and preventative security measures. Having said that, we need to be aware that there is life after the WC and accordingly prepare for that, too.”
“I view crime with mixed feelings,” says Mr Loftus. “Negatively from a South African citizen’s perspective but conscious of the fact that it is one of the primary drivers of our business. With foreclosures and liqiuidations come job losses, and accordingly the potential for further crime which will have to be addressed. As an industry, we’re going to come under increasing pressure to find different ways of doing things. A lot of what happens to us is going to be the result of how the manufacturers and suppliers cope. I have no doubt that there is going to be a shape-up, characterized by mergers and acquisitions, sooner or later. Probably, we’ll see volumes either staying steady or climbing slightly, but revenue is more than likely going to stay flat or drop. Definitely the watchword of the day and for the next 12 to 18 months is prudence.”
For Jenny Reid, one of the major challenges facing the industry is to build up its professionalism to a point where people know the “real cost of what they are buying and have faith that they are not being ripped off”. Says Ms Reid: “Unfortunately, the many fly-by-night organizations in our industry are damaging its reputation, so this needs to be addressed as a matter of urgency. Our industry also needs to find ways to stay ahead of the criminals whose intelligence is phenomenal”.
Within the electronic security sector, the greatest challenge lies in overcoming the current shortage of skilled technicians, believes Mr Rosenbaum. “This is especially true in areas that are converging with the IT industry. Trained and qualified technicians capable of designing, installing and maintaining the new high-tech systems must be high on the electronic industry’s agenda. And so must system integrators and installers.”
He also stresses the importance of persuading IT managers to accept the new IP-based security management systems on their networks. Last but not least, he agrees with Ms Reid about the need to improve the industry’s bad reputation.
“America will lead the way and when their markets recover, the world will follow” says Mr Mincher. “It may take a long time for this to happen, though, so the security industry will need to look at improved efficiency, providing better service and reducing operating costs in the interim.”
Ensuring that staff members are trustworthy and competent is now critical. So is managing cash in an environment where most companies are going to see a rise in their debtors’ book as clients hold on to their cash for as long as possible, maintains Mr Derrick.
Mr Phipps’s concerns include the upcoming industry wage negotiations, which he feels could lead to possible retrenchments within the industry. He’s predicting that the industry will continue rationalizing and consolidating as companies come under increasing operating pressure under the current financial and market constraints, especially towards the second half of 2009.
“Convincing the world that South Africa is a safe and secure environment for the 2010 Soccer World Cup has to be one of our greatest challenges,” avers Mr Moropa. Other challenges on his list include industry wage negotiations taking place without a strike, general elections going ahead without violence, hosting a secure and safe Confederations Cup of Nations Soccer and creating a safe South Africa that meets FIFA’s standards for the 2010 event. Lastly, clients will need to be convinced not to cut back on security during difficult times.
For Mr Edery, the future holds many trials: addressing limited bandwidth and unreliable telecommunications; the power crisis; crime-fighting initiatives that are fragmented and lack large-scale support; a lack of information relating to security risks and risk management policies; corruption; unemployment and crime; porous borders and finally, establishing a security-conscious culture. “In order to best manage 21st century risk, we as a country need to develop and implement a culture whereby we embrace new technology proactively and not only reactively,” he asserts. “The financial slowdown should not make us lose focus on the bigger picture.
Power of the industry
“The British Security Industry Association (BSIA) is advising organisations that may be contemplating cutting back on security during these uncertain economic times to think again,” says Mr Moropa. “With the British Home Office anticipating an increase in overall crime figures - based on previous downturns – the BSIA believes now more than ever, that existing security systems and procedures should be maintained. There may even be a case for additional investment to protect assets and people and to realise long-term savings in terms of the impact of crime on public and commercial areas.”
He adds: “Recession-related crime actually highlights the need for investment in stringent security measures, not only to prevent crime but also to curb the financial, physical and emotional impact that becoming a victim of crime can have. Many businesses and public sector bodies may decide to cut back on security when times get tough but realistically this is the time when adequate or even increased security makes more sense.”
The security industry has always been one of the larger and fastest growing industries in South Africa, which is where its power lies, says Mr Krogh. “As with any other industry, it is experiencing the effects of the latest financial situation but I don’t think matters will deteriorate much further. The security industry will survive. It always has.”
Potentially, says Mr Rosenbaum, the power of the security industry is great in terms of being able to offer employment opportunities and grow even in difficult times. “I also believe that with the growth of the industry there is now, more so than ever, an opportunity for government and other related bodies to partner with the security industry to build a key economic growth sector and to jointly focus on improving the crime situation in South Africa. This opportunity would have a positive spin-off in terms of the general economy with respect to foreign investment and confidence in general.”
For as long as there is a crime problem in the country, says Mr Scallan, the need for security will always be there and hence the continued strength and power of the industry.
Mr Van Ryneveld concurs: “In a depressed economy, people unfortunately lose their jobs and often resort to desperate measures such as crime to fend for themselves and their families. There will always be a need for people to protect their homes and assets so as to avoid becoming victims of crime.”
“We have a lot of highly skilled and knowledgeable people in South Africa with world-class products to support the industry – that’s our great strength,” concludes Mr Coetzee.
Concludes Mr Edery: “Maslow’s Hierarchy of Needs lists safety as the second most-basic human need. So, whether there is a recession or not, our industry will always be relevant as long as we face the challenges noted above.”
Ends
By Ingrid Olivier, freelance journalist
Tel/fax: (041) 581 8143 / 082 657 6530
for Godfrey King, Security Publications
Tel: (031) 764 6977
Johan Krogh ü
Jenny Reid ü
Anthony Rosenbaum ü
Clinton Phipps ü
Alison Bull (Clive van Ryneveld) ü
Mark Marais
Kevin Derrick (Emma Smallman) ü
Dolf Scheepers / Thabang Moropa ü
Bill Mincher
Terry Scallan
Jean Coetzee ü
Jack Edery
John Loftus